U.K. jobs data set to fuel rate-hike chatter this week in Europe

After all the European Central Bank frenzy last week, it\’ll be tough for this week not to look dull in comparison.

But what it lacks in ECB excitement, we could make up for with Bank of England rate-hike second-guessing. A raft of U.K. labor-market data is due, and that looks set to stir the pot.

Unlike the euro zone, the U.K. has an economic recovery on full speed, well-tamed inflation rates and a steady decline in unemployment. And with the fastest-growing economy in the West comes speculation on when the BOE with pull back from its emergency settings, which have kept its main lending rate at a record low of 0.5% since March 2009.

Having backed away from its initial forward guidance, which linked rates to the level of unemployment, the central bank will now look at a raft of indicators before deciding when to tighten policy. Several of these data sets come out this week, so watch out for fireworks.

U.K. labor-market data: This week\’s data highlight, the report will probably add to the pile of evidence showing the British economy remains strong. Expectations are for headline unemployment to have dropped to 6.7% for the three months to April, from 6.8% in the three months to March. That 6.7% would mark the lowest level since early 2009.

With the new \”fuzzy\” BOE guidance, wage growth has become more important for policy makers, however. The picture for that data is less clear. Including bonuses, average salaries rose 1.7% in March. Bearing in mind the inflation rate for that month was 1.6%, then growth in real earnings finally moved into positive territory.

But that trend is likely to fade in April. Economists at Investec Securities forecast a year-on-year rise of only 1% in earnings, including bonuses, in April — well below that month\’s inflation level of 1.8%. The reason? Exceptionally large bonuses in April last year, which beefed up the data, rather than recent weakness in salaries.

\”We see this as a temporary effect, most likely lasting three months,\” Philip Shaw, chief economist at Investec Securities, said in a note. \”With evidence that pay settlements are rising, it seems likely that the earnings series will strengthen over the course of this year.\”

The labor-market data come out on Wednesday at 9:30 a.m. in London, or 4:30 a.m. Eastern Time.

Euro-zone industrial production: This monthly report comes out on Thursday at 10 a.m. London time, 5 a.m. Eastern Time, and is forecast to show a rebound for April after a pretty lackluster March. HSBC is calling the euro-zone industrial production level to be up 0.3% month-on-month, after falling 0.3% in March

But don\’t expect a smooth rebound. Germany will likely be the main growth driver (as always), offsetting declines in Spain and France.

The country-specific reading for France is out on Tuesday at 7:45 a.m. London time, or 2:45 a.m Eastern. We\’ve seen weakness in French data for April that\’s already been released, such as business confidence and the manufacturing PMI. Declines in these suggest France is seeing a slowdown in industrial production as well, and HSBC expects to see a drop of 0.8% in that reading this week.

China data: In a slow week for top-tier European data, it\’s worth looking east, where Chinese data could steer global markets. First up is an inflation reading for May, out on Tuesday before the European markets open: Forecasts are for a rebound to 2.5% year-on-year inflation, from 1.8% in April.

\”Overall inflationary pressures remain moderate, and we expect the [People\'s Bank of China] to maintain a relatively accommodative monetary policy stance and continue with targeted loosening to support growth,\” HSBC analysts said in a note.

On Friday, data on China\’s industrial production, retail sales and fixed assets are out ahead of the European open.

Shutterstock

Earnings: Mainly quiet here, too, with only a few major companies reporting. Spanish retailer Inditex
— owner of the Zara and Massimo Dutti brands — reports first-quarter results on Wednesday. Analysts at Barclays expect solid same-store sales growth of 5%, but that foreign-exchange effects will have a 5% negative impact.

J Sainsbury
releases its first-quarter trading statement on Wednesday as well, and Barclays analysts expect like-for-like sales to drop around 1%. That would be a clear improvement from the 3.1% decline reported in the previous quarter, \”but it would be wrong to interpret this as a material underlying improvement, given the distortion from Easter,\” according to Barclays.

World Cup: Not directly exactly markets-related, but we suspect European investors will be following the immensely popular soccer tournament this week. The first whistle blows on Thursday, when host nation Brazil takes on Croatia in Sao Paolo. Brazil is tipped to win the coveted trophy, but Argentina, Spain and Germany are also among favorites for the title.

Story Conversation

About The Tell

The Tell is MarketWatch’s fast and engaging look at trends and themes in the day’s markets. Drawing on our reporters, analysts and commentators around the world, as well as selecting the best of the rest online, The Tell is all about the pulse of the markets through news, insight and strategic information to help you make the best investing decisions. Got a tip? Tell us at TheTell@MarketWatch.com